Delinquencies of 30-days-plus in commercial real estate loans in CMBS fell 26 basis points (bp) to 9.51%, according to Trepp, New York, yesterday. Only August 2011’s 36-bp drop was larger.
But Trepp warned that higher delinquency rates could be on the horizon. Trepp expects the delinquency rate to increase as 2007-vintage loans — originated under the weakest underwriting standards — start reaching their five-year balloon maturities. This will add to the stress being put on the delinquency rate by the slowdown in CMBS issuance.
“It’s quite possible that this will represent the best reading for a while,” said Trepp Senior Managing Director Manus Clancy. “Even if the 2007 vintage is only ‘as bad’ as the 2006 vintage has been, the (delinquency) rate could easily go up 75 bp. So, for now, further improvements in the delinquency rate could be elusive.”
Nearly $15.5 billion of 2007-vintage loans will come due in 2012, with the majority reaching their balloon dates within the next six months. For perspective, one year ago the CMBS market was looking at $13.7 billion in 2006-vintage five-year balloon loans reaching maturity. Of that, $9.9 billion remains, meaning only 29% was retired in some form. Of the $9.9 billion, nearly 60% is already with the special servicer.